Washington Panics as the Economy Burns

So, $290 billion into his bailout plan, Hank Paulson is calling for a do-over. Now there is a confidence booster.

Providing "I-told-you-so" talking points to the what's-the-rush crowd, the Secretary of the Treasury announced yesterday that the government is no longer going to use any of the $700 billion Congress allocated to the Troubled Asset Relief Program (TARP) to buy, well, Troubled Assets from financial institutions -- the original centerpiece of the plan.

Instead, Paulson is looking to fortify the financial industry by continuing to buy premium stock in banks (aka the Warren Buffett approach). Unfortunately, instead of sending Paulson a thank you note in the form of increased consumer lending, the banks are depositing the government checks and taking a wait and see approach. (Among the things they've seen: another $40 billion handed over to AIG.)

This is not to say that Paulson's midstream direction change is a bad thing -- indeed, the lip service he's now paying to putting the focus on consumers is encouraging -- but it shows just how uncertain official Washington is about how to keep the economy from imploding.